BIMB’s 1Q22 core earnings fell 9% QoQ due to weak non-financing income and higher effective tax rate. Also, GIF ratio saw an uptick. However, NFM remained flattish sequentially and financing growth held up well. Overall, results missed expectations and hence, we cut FY22-23 profit by 5-9%. That said, we introduce FY24 financial projections. Despite earnings miss, we still like the stock for its positive long-term structural growth drivers, better asset quality compared to other smaller-sized peers, and inexpensive valuations. Retain BUY call but with a lower GGM-TP of RM3.30 (from RM3.45), based on 0.97x FY23 P/B.

Below expectations. Stripping away modification loss (in 4Q21), BIMB posted 1Q22 core net profit of RM106m (-9% QoQ, -33% YoY). This was below estimates, forming 18-19% of our and consensus full-year forecasts; key variance came from lower-than expected non-financing income.

Dividend. None declared as BIMB only divvy in 3Q.

QoQ. Core net profit was down 9%, no thanks to weaker non-financing income (-34%) and higher effective tax rate (-38ppt). These were, however, mitigated by the drop in bad financing allowances (-61%). Also, we note net financing margin (NFM) remained flattish at 2.30% during the quarter.

YoY. The decline in non-financing income (-16%) together with higher financing loss provision (+4-fold), dragged core bottom-line down by 33%.

Other key trends. Financing and deposits growth held up well at +6.7% YoY (4Q21: +6.5%) and +10.8% YoY (4Q21: +6.8%) respectively. In turn, the financing-to-deposit ratio was largely unchanged QoQ at 88%. Separately, gross impaired financing (GIF) ratio rose 6bp on a sequential basis to 1.02% due to an uptick at the retail sector.

Outlook. NFM is seen to widen sequentially, following May-22’s OPR hike. However, the magnitude could be capped by downward normalization of CASA mix. That said, financing growth is anticipated to chug along for now, considering economic recovery. On a separate note, GIF ratio is likely to creep upwards but we are not overly worried as BIMB has already made heavy pre-emptive provisioning in FY20-21 to cushion this impact. Moreover, FY22 NCC assumption pencilled in by both us and consensus are still fairly elevated (above the normalized run-rate but below FY20-21’s level).

Forecast. We reduce FY22-23 net profit estimates by 5-9% to account for lower-than expected non-financing income. That said, we introduce FY24 financial projections.

Retain BUY call but with a lower GGM-TP of RM3.30 (from RM3.45), following our profit cut. This is based on 0.97x FY23 P/B (from 1.02x) with the assumptions of 9.4% ROE (from 9.8%), 9.6% COE, and 3% LTG. This is beneath its 5-year mean of 1.16x but ahead of sector’s 0.92x. The discount/premium is fair considering its ROE output is 2ppt/1ppt below/above its 5-year average/industry. Despite profit miss, we continue to like the stock for its positive long-term structural growth drivers, better asset quality compared to other smaller-sized local banks, and inexpensive valuations.

Source: Hong Leong Investment Bank Research - 1 Jun 2022